Mr. Biden, Your Good Economy Won’t Sell Itself

Thirteen months into the Biden administration, Democrats face a troubling paradox. By many measures the economy has done very well, hugely outperforming expectations for growth and job creation. A record number of Americans say that it’s a good time to find a quality job. But inflation has spiked, consumer sentiment has plunged, and polls show that economic perceptions are currently a big liability for their party.

How should President Biden talk about this situation? Obviously he needs to acknowledge the inflation problem. But there’s a debate among pundits, and presumably within the party’s inner circles, about how much he should tout his achievements. Some commentators seem to believe that emphasizing the good news would be a mistake, that his best move would be to demonstrate that he’s in touch by acknowledging that things have gone wrong — that he should, in effect, ratify negative narratives about the economy.

Well, I remember the 1970s, and if you ask me, pundits calling on Biden to show “humility” seem to be suggesting that he should give a version of Jimmy Carter’s infamous “malaise” speech.

Furthermore, if Biden emphasizes the positive he will have reality on his side. I’ve been arguing for a while that the economy is doing much better than either consumer surveys or polling suggest. And two important new studies reinforce that case.

The first study, by researchers at the Federal Reserve Bank of Dallas, involves real wages — wages corrected for inflation. I’ve seen many articles simply asserting as fact that wages haven’t kept up with inflation. But is that true?

You might think this is a simple question to answer — just compare average wages with the level of prices. But the pandemic has messed up such comparisons by skewing the composition of the work force. In 2020 average wages went up a lot, not because individual workers were getting big raises, but because the millions of Americans laid off were disproportionately in low-paid occupations like restaurant work. Those same occupations have led the recovery in employment over the past year, so that true wage growth has been higher than the average might suggest.

The Dallas Fed study, which attempted to correct for these effects, found that real wages actually rose in 2021, although they slipped slightly in the second half of the year.

I’m not saying that workers are doing great — they aren’t. Nor should we take this study as the final word; maybe real wages are actually down a bit rather than up a bit. But these estimates are inconsistent with claims that workers have suffered large declines in their purchasing power.

And in terms of the politics, it seems worth noting a historical comparison: Real wages for blue-collar workers declined fairly consistently over the course of Ronald Reagan’s presidency, despite the 1985-86 plunge in world oil prices. Yet Republicans won not one but two landslide presidential election victories in the 1980s largely on the strength of perceived economic success.

Still, people dislike inflation even when their incomes are keeping up, perhaps because inflation creates a sense that things are out of control. This helps explain the decline in consumer sentiment over the past year, although both The Times’s Nate Cohn and I have found that the decline in confidence is bigger than you would have expected even given inflation aversion.

But there’s more. Researchers at the Federal Reserve Bank of New York point out that their bank’s survey of consumers, like other surveys, says that Americans expect high inflation this year but don’t expect it to persist. Furthermore, longer-term expectations of inflation have become less responsive to current price increases than they were in the past — which is the opposite of what you’d expect to see if people really perceived an economy spinning out of control.

So Americans aren’t suffering big declines in real wages, and they see inflation as temporary, not a runaway phenomenon. Why, then, hasn’t the good economic news on other fronts made them more upbeat?

Maybe because, for whatever reason, they haven’t heard that good news.

There are many indicators of a large divergence between what people say about their own situation — which they rate as pretty good, financially and otherwise — and what they say about what’s happening to the nation as a whole. That is, they imagine that others are doing badly even though they themselves are doing OK.

Some of this represents immovable partisanship — nothing will convince Republicans that things aren’t terrible. But as Greg Sargent of The Washington Post points out, recent polling finds that when voters are presented with information about the good news on jobs, growth and unemployment, their assessment of the economy — and of Democrats — improves substantially.

So Biden should indeed talk about his successes. He shouldn’t ignore the negatives — although denial of awkward reality has historically worked well for Republicans. But he should tout the good things that have happened on his watch. After all, if he won’t, who will? A good economy won’t sell itself.

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